How to Legally Get Rid of All My Debts Including a Past Due on Home Equity Loans

It is possible to legally get rid of all your debts, including a past-due payment on a home equity loan, but you may lose your home. Your home serves as collateral for the home equity loan, and the lender will foreclose if you stop making payments. Filing for bankruptcy can help reorganize your debts and eliminate certain types of debts, such as credit cards. Even after bankruptcy, however, you remain fully liable for mortgage debt. Your only legal option for eliminating the home equity loan is to pay it off, sell the property, or surrender the home through foreclosure or bankruptcy.

Instructions

1

Seek advice from a nonprofit credit counselor. Eliminating all of your debt, including real estate debt, is a big project and unbiased advice could be helpful. A credit counselor can suggest long-term strategies for legally eliminating your debt such as debt management plans, which allow credit card and other unsecured debt to be eliminated in about four years. Authorize the credit counselor to obtain your credit report and make debt elimination suggestions based on your specific situation and level of debt. Find a credit counselor near you by checking the HUD website (link included in Resources section of this article).

2

Hire a real estate agent to sell your house. Use proceeds from the sale to pay off any existing mortgage and the home equity loan. Pay off other bills with any money remaining. Selling your house may not be your desired strategy, but it is the best legal solution for eliminating the home equity debt unless you have other cash resources.

3

Sell all other assets that are secured debts, such as automobiles or boats.

4

Settle credit cards and other unsecured debts by offering to pay less than the full balance. The SmartMoney website reports that lenders will sometimes settle delinquent credit card accounts for as little as 20 percent of the balance. Call the customer service number on your credit card statement and explain you can no longer continue making payments as agreed and must settle. Ask to settle for 20 percent of the balance and keep negotiating until you have a deal. Get the terms in writing before making payments.